Sinopec is keen to diversify its fundraising efforts in European markets, following in the footsteps of Cnooc, which managed to competitively price a euro-denominated tranche last week.
China’s biggest refiner has mandated several banks to arrange a series of fixed-income investor meetings in Europe, and conference calls with Asian and US based fixed income investors, commencing October 4, according to a source.
Citi, HSBC, JPMorgan, Société Générale and Goldman Sachs are joint global coordinators, lead managers and bookrunners of the deal, and are also in charge of arranging those meetings.
A senior unsecured US dollar and/or euro bond offering guaranteed by Sinopec may follow, subject to market conditions. The issuer is Sinopec Group Overseas Development, a wholly-owned subsidiary of the company.
After Cnooc’s $2 billion equivalent dual-tranche deal last week – when it made its debut in the European market – syndicate bankers believe similar types of credits could come to the market with a structure akin to the Chinese oil and gas producer’s.
However, such names will be limited to large state-owned enterprises (SOEs) or at least AA-rated companies that are already frequent borrowers in the dollar space.
“The oil companies have been very large issuers in the dollar space and euro investors can take some degree of comfort that they won’t be one-time only issuers in the euro space,” said a Hong Kong-based head of DCM. “An orphan issue would mean that liquidity would be very weak and there would be no incentive, on an ongoing basis, to follow the credit.”
The increase in competition between both European and US investors for Cnooc’s dual-tranche bond meant that the company was able to benefit from pricing advantages. With an initial price guidance of 115bp above the euro’s mid-swap for the euro tranche and 210bp over Treasuries for the dollar Reg S/144A tranche, both tranches priced tighter by 25bp, according to sources.
Nonetheless, arbitrage pricing opportunities should not only be the key driver for issuers to access the European market, highlight experts.
“While the European market might present an arbitrage [opportunity] over time, the real rationale of issuing the bond was not to generate this huge arbitrage, but to take capacity out of the market and to create some uncertainty with the US investor based,” said a Hong Kong-based syndicate banker.
“US investors will feel a lot more compelled to be a lot more aggressive and must be willing to accept an old price otherwise there might not be a deal in US dollars.”
In Cnooc’s case, it was able to price its dollar tranche flat inside its existing curve. The outstanding Cnooc 2022s were trading at a G-spread of 200bp while its 2021s were at 197bp and, after adjusting for the curve, the reference point for the new deal was 200bp above Treasuries.
China Construction Bank International, Bank of America Merrill Lynch, Bank of China International, Mizuho Securities and ICBC International are joint lead managers and bookrunners for the 144A/Reg S US dollar senior unsecured bond.
Deutsche Bank, UBS and Standard Chartered are joint lead managers and bookrunners for the 144A/Reg S euro senior unsecured note.
